It was a gift from the uS philanthropist thomas Kaplan and the money raised will go to charities including the raF Your Money Benevolent Your Money Fund. E PA
S AT U R DAY, 11 JULY 2015 S AT U R DAY, 11 JULY 2015
Focus on high-yielding giants of Focus on high-yielding giants of When the going gets tough, the FTSE 100 is paying dividends FTSE stay 100 is payingin dividends tough invested small firms The Analyst TheDAMPIER Analyst The Analyst MARK MARK DAMPIER MARk DAMPIER
The potential to receive an Old home toincome onean of attractive andisgrowing TheMutual potential to receive the most to successful UK equity is likely become increasattractive and growing income teams. Fortomore than decade, ingly important in theaincreascoming is likely become it has been a key contender in years as investors take advaningly important in the coming the small and medium-sized tage ofasnew rules which allow years investors take advancompanies arena. Withallow the them flexibility over tage ofmore new rules which appointment of Simon Murhow they draw their pension. them more flexibility over inthey 2008, andtheir more recently Iphy therefore expect companies how draw pension. Richard Buxton, it now also capable of paying a high and I therefore expect companies has considerable strength in rising dividend, and funds capable of paying a high and larger seeking to invest inand suchfunds comrisingcompanies. dividend, Hargreaves Lansdown’s panies, to become increasseeking to invest in such comresearch team identified the ingly popular. panies, to become increaspotential in the UKTrust team many Thepopular. Merchants plc is ingly years ago: our multi-manager an investment trust which The Merchants Trust plc is team firstoffers invested with Old currently an attractive an investment trust which Mutual’s UK Smaller Compayield of 4.7 per cent and has an currently offers an attractive nies fund in 2001. Since then, impressive record of growing yield of 4.7 per cent and has an investors have been richly income, with the dividend impressive record of growing rewarded. having been increased in each income, with the dividend Investing over this period of the past 32 years. Simon having been increased in each has required – an Gergel of Allianz of the past 32patience years.Global Simon essential, yet challenging disInvestors has been at the helm Gergel of Allianz Global cipline to master. Given the since June 2006 and his focus Investors has been at the helm magnitude of the financial is predominantly on larger, since June 2006 and his focus crisis in 2008, the easiest and high-yielding companies in is predominantly on larger, most comfortable option was the FTSE 100. high-yielding companies in to sell everything. He starts by looking for the FTSE 100. However, unless investstocks with anby above average He starts looking for ments were sold at the top of yield, although this alone is stocks with an above average the market prior to the crash, never reason enough for buyyield, although this alone is and at the boting arepurchased company’s shares. An never reason enough for buytom even experts find attractive valuation, strong ing a(which company’s shares. An near impossible), thisastrong would financial position and comattractive valuation, have been a costly mistake. petitive advantage are financial position and aother comThe fund suffered a fall of qualities he looks are for. The petitive advantage other 45 per cent, but investors wider economic environment qualities he looks for. The who held on have been well and broad themes or trends wider economic environment compensated: it has are considered in his andalso broad themes or grown trends 271.6 per cent from its low in analysis. These factors are also considered inwill his October 2008. often be the catalyst that analysis. These factors will Stockbe volatility durcauses amarket company’s share often the catalyst that ing the crisis led the fund’s price to rise. causes a company’s share Presently, price to rise. rather like Neil Presently, rather like Neil Š THE INDEPENDENT LIMITED 2015 Š THE INDEPENDENT LIMITED 2014
Woodford, Mr Gergel believes that the strong UK economic Woodford, Mr Gergel believes recovery we are is that the strong UK seeing economic FUND FACT BO X households unsustainable recovery we as are seeing is are still in far too debt. unsustainable as much households OLD MUTUAL UK SMALLER COMPANIES He therefore to %are GROWTH, still YEARS in farhas tooexposure much debt. global businesses with3 strong 5 to He therefore has 1exposure franchises and with attractive global strong Old Mutualbusinesses UK 73.69 139.25 yields, which heattractive believes Smaller Companies franchises and14.00 could perform well even in an yields, IA UK Smallerwhich he believes 9.59slow 69.22 eco118.97 environment of Companies Sector could perform well even in an nomic growth. environment of Examples slow ecoinclude Initial chargeGlaxoSmithKline 0% 1.00% and nomic growth.Yield Examples Annual Charge 1.03% Shell. Fund size ÂŁ143m Royal Dutch include GlaxoSmithKline and Mr Gergel also believes that Managed by Daniel Nickols Royal Dutch Shell. Launch 29in January 2001 inflation the UK couldthat be MrDate Gergel also believes higher than anticipated. To inflation in the UK could be SOURCE: HARGREAVES LANSDOWN provide someanticipated. protection he higher than To has invested companies provide somein protection he manager, Dan Nickols, to which own “real such has invested inassetsâ€?, companies increase exposure to larger as buildings and property. The which own “real assetsâ€?, such players within the smaller supermarket Sainsas buildings andgroup property. The company sector;group they can genbury’s, Greene King, the pub supermarket Sainserally traded morecompaeasily, operator, and utility bury’s,be Greene King, the pub providing greater flexibility in nies such as Pennon and operator, and utility compauncertain times. National Grid all held in nies such as are Pennon and More recently, been the portfolio. National Grid areheallhas held in diversifying back into the Among financial companies the portfolio. lower endfinancial of the market as he he is generally avoiding banks, Among companies feels smaller companies are with the exception of HSBC. he is generally avoiding banks, now more attractively valued He prefers asset management with the exception of HSBC. relative to medium and large companies suchmanagement as Standard He prefers asset companies. I view this posiLife, Man Group and Ashcompanies such as Standard tively as, historically, this is more, which benefit as their Life, Man Group and Ashwhere his stock picking has assets under management more, which benefit as their been its finest. assetsat under management Mr Nickols invests with FUND FACT BOX three broad themes: structural F U MERCHANTS N D F A C TTRUST BOX THE growth; specialPLCsituations; % GROWTH, YEARS and economic sensitivity. The THE MERCHANTS TRUST PLC % GROWTH, includes YEARS 1 a supplier 2 3 of former 1 41.72% 2 143.11% 3The mixer drinks, 19.88% Fever Tree. The Merchants Trust plc company has gained signifiThe Merchants 19.88% 41.72% 143.11% cant Trust plcmarket share from others FTSE 100 9.34% 24.81% 91.44% in the industry and has estabFTSE 100 itself as 9.34% 24.81% 91.44% lished Initial charge 0.00% Yieldthe 4.70%only preAnnual Charge 0.35% Yield Fund size ÂŁ666m mium mixer provider. The Initial charge 0.00% Yield 4.70% stock has risen 85 per cent Annual Charge 0.35% Yield Fund size ÂŁ666m Managed by Simon Gergel Launch Date February 1889 since it16listed in November Managed by Simon Gergel 2014, Launch Dateaided 16 Februaryby 1889 a growing
increase, and companies which benefit from increasing increase, and companies transaction volumes such as which benefit from increasing IG Group and ICap. such as transaction volumes Companies IG Group andcapable ICap. of benBEATING THE BENCHMARK efiting % Companies GROWTHfrom increasing capable of conbensumer spending in emerging 450 efiting from increasing conmarkets also feature in the sumer spending in emerging portfolio. Among theinbusi300 markets also feature the benefit nesses he expects portfolio. Among to the busifrom British 150 this nesses he theme expectsare to benefit American Tobacco, from this theme areMotherBritish care American Tobacco,Business Mother0 and United Media, a marketing events care and United and Business company which and is seeing Media, a marketing events -150 strong growth from its seeing emerg2005 2010is 2015 company which ing market operations. growth fromÂľits emergÂľstrong OLD MUTUAL UK S COMPS. IA UK S COMPS. Mr Gergeloperations. claims not to buy ing market companies because Mr Gergelpurely claims not to buy number of premium gin they are a large part of the companies purely because brands in the UK, and the risindex – if he does not like a they are a large part of the ing popularity of the Moscow company he will not own it. index – if he does not like a mule cocktail in the There is nohe exposure toown Astracompany will notUS. it. “Special situationsâ€? include Zeneca, Vodafone orto Diageo, There is no exposure Astratheexample, veterinary service for and there is limZeneca, Vodafone or provider Diageo, CVS, which isand consolidating ited exposure to mining for example, there iscomlim-a fragmented sector through the panies as they currently don’t ited exposure to mining comacquisition of smaller veterioffer attractive enough value. panies as they currently don’t nary practices. Similarly, whenThis he isapproach positive offer attractive enough value. to growing a business has on a company’s he Similarly, when prospects he is positive worked successfully for similar invests with high conviction, on a company’s prospects he businesses the past. and is prepared to hold For big invests with in high conviction, example, the funeral services positions in individual comand is prepared to hold big provider Dignity, previously panies. Royal Dutch Shell, for positions in individual comheld in the grew considexample, isfund, a 9Dutch per cent holdpanies. Royal Shell, for erably through example, is a 9 the peracquisition cent holdof small, family-run funeral parlours. BEATING THE BENCHMARK Finally, Mr Nickols invests % GROWTH, SINCE LAUNCH in more sensiBEATING THE economically BENCHMARK 80 %tive GROWTH, SINCE LAUNCHThe collapse businesses. 80the oil price has contributed 60 in to 60 falling inflation, which, 40 coupled with rising wages, 40 20 means the average UK house20 0 has benefited from a 9 per hold cent increase in disposable -200 income over the past year. The -20 -40 manager expects consumer 2006 08 10 12 14 -40 services companies to profit, 2006
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ing, and GlaxoSmithKline is 7.6 ing,per andcent. GlaxoSmithKline is and investments area Overall the trustin hasthis around 7.6 per cent. include theinvested housebuilder 70 per cent in the Overall the trust has around Crest100, Nicholson and car FTSE with the remainder 70 per cent invested in the retailer Lookers. invested thethe larger end of FTSE 100,atwith remainder The total number of new the FTSE 250. Alarger bias towards invested at the end of companies listing on the UK larger companies, less expothe FTSE 250. A bias towards market has grown fromexpo81 in sure tocompanies, sectors typically assolarger less 2013 to 106 over the past year. ciated with income investing, sure to sectors typically assoMr Nickols feels heconsumer is able to such aswith healthcare, ciated income investing, a d d as cand ohealthcare, n stelecoms, i d e r a bconsumer l e and va lno ue goods such through stock selection in this exposure to overseas-listed goods and telecoms, and no area, and so encouraged by shares differentiates this trust exposure toisoverseas-listed the increasing number of from peers. shares differentiates this trust opportunities. The trust takes advantage from peers. His involvement in floats of The its flexibility borrow trust takes to advantage hasits historically positive money to invest,been and gearing of flexibility to borrow for the fund. He at has invested currently around 20 money to stands invest, and gearing in 27 smaller company listings per cent. Along with the relacurrently stands at around 20 since 2013 and, on average, his tively concentrated portfolio per cent. Along with the relaselections have outperformed of around 43 stocks this does tively concentrated portfolio thearound Numis Compaincrease risk and could mean of 43Smaller stocks this does nies index by 20.6 per cent that the trust is more volatile increase risk and could mean over this time. than the benchmark index. that the trust is more volatile Smaller companies suffered After difficult period durthan theabenchmark index. a hangover in 2014, following ing the financial crisis the After a difficult period durstellar performance in 2012 trust has performed well ing the financial crisis the and 2013, but haveMr done well recently and since Gergel trust has performed well so far this year. took over the share price has recently and since Mr Gergel There are always risks posed grown by 78 per cent with took over the share price has by the wider economic envidividends reinvested grown by 78 per cent comwith ronment. However, with pared with 58 per cent for thea dividends reinvested commore stable political scene, FTSE 100. pared with 58 per cent for theI feel smaller in BritThe trustcompanies could be considFTSE 100. ainThe could enjoy something of ered by investors seeking a trust could be consida revival. With one of the best higher yield now from a portered by investors seeking a UK teams atnow its helm, Old folio ofyield predominantly higher fromthe alarger portMutual UK Smaller Compacompanies, though it should folio of predominantly larger nies fund that remains one of my be noted at the of companies, though ittime should favoured options to harness writing trust trades onofa be notedthe that at the time this potential. premium to trust net asset value writing the trades onofa approximately pervalue cent. of premium to net1.1 asset Mark Dampier is approximately 1.1head perof cent. researchDampier at Hargreaves Mark is head of Lansdown, re s e arc h the a t asset Har ghead r e a v eofs Mark Dampier ismanager, financial adviser and stockbroLansdown, the manager, re s e arc h a t asset Har greaves ker. details fLansdown, i n aFor n cmore i a lthe aasset d v iabout smanager, e r the and stockbroker. For ffunds i n a nincthis i a l column, a d vmore i svisit e rdetails and www.hl.co.uk about the funds included in this stockbroker. For more details column, www.hl.co.uk about thevisit funds included in this column, visit www.hl.co.uk
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